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JES E. STALEY: Welcome to today's CFR meeting. A couple housekeeping items: First, if people can turn off the ubiquitous BlackBerrys and cell phones; they can interfere with the audio system. We'd also like to remind everybody, the members, that this meeting is on the record.

The structure of this meeting is Peter will make some formal remarks for sort of 10 or 15 minutes and then we'll have a Q and A session and then open it up to the audience's questions.

It's a great honor to be able to introduce our speaker today, Lord Mandelson. He is an old friend of the CFR, but he is here for the first time in his new role as British secretary of state for business, enterprise and regulatory reform. Lord Mandelson was recently called to the U.K. to join the cabinet. He left Brussels, where, as we all know, for the last four years or so he was the European Union's trade commissioner at a pretty fascinating time.

These are extraordinary events that we are living through. And one aspect which I think is somewhat unique is how this financial crisis is indeed so global and has touched all nations seemingly at the same time and with great severity. Given that, the comments that Lord Mandelson will make this morning are probably as applicable here as they are in the U.K. and in Europe.

So without further ado, Lord Mandelson. (Applause.)

PETER B. MANDELSON: Jes, thank you very much, indeed, for your welcome. And good morning, everyone. And thank you in particular for reminding me that everything that I say is on the record. In case I sort of stray during the course of the next hour into excessive candor, I'd be grateful if you could remind me that everything is on the record, so that I can, you know, just sort of reimpose some self-discipline.

Let me offer you some observations for 10, 15 minutes and then engage with you.

I think it says something about what's happening in the global economy and the changing political landscape of the global economy and it says something about the G-7 finance ministers at the weekend that the main outcome of that meeting seems to have been that whereas that sort of previous high command of the G-7 would have been tracked with great anticipation, its main outcome seemed to be that it was simply a staging post for the next meeting of the new steering committee of the global economy being formed with the G-20. And I think that says quite a lot, that we are moving from an era of G-7 to an era of G-20, and that we have to wake up and take notice of this change, which is, in my view, quite a profound one and to take greater notice of what others are saying.

Two weeks ago we had in London Premier Wen Jiabao, who came with a group of very senior ministers. I was struck by the premier's tough, confident line on the flaw in Western banking system and regulatory systems, not only in London but during his European tour.

Our first reaction to this, I think, in the United States and in the European Union, when we have such sort of strictures taken to us, is probably to be defensive, I think not least because China's own economic model is hardly flawless.

But a lot of the criticism, once we've got over our initial sort of defensive reaction to these strictures, is, I think, to accept that much of the criticism is fair enough, and more importantly, the debate it's engaging is a reflection of a fundamental shift in the balance of economic weight in the global economy.

And this is a new reality, and while its first test will be at the London meeting of the G-20 on the 2nd of April, following the previous November meeting in Washington, the truth is that Copenhagen and the climate change negotiations will follow on pretty quickly.

So I think we have just to bear this in mind: that insofar as we can make the G-20's role in relation to the global economy a success, that will have a positive knock-on effect on Copenhagen and the climate change negotiations, and of course, conversely, if we don't make a success of the G-20 in April, that too is going to have a negative knock-on effect on everything else that we're taking on in trying to navigate our way through in the challenges that our world is facing.

So what is the London meeting going to be about? Well, London's big problem, London's big challenge, what we are confronted with, is, in my opinion, nothing less than a risk -- a sharp risk of dismantling or at least damaging the global economic machine: the risk of deglobalization.

We have a crisis, as we all know, in the global real economy. It started in the financial markets, as we know too. And we also know that it's turning into something much worse and that the sort of bottom is -- the floor is being sort of taken out of global growth. Trade is set to go -- move into reverse in the global economy for the first time since 1982.

Now, after, therefore, a 20-year bull market, the core engines of growth, trade and international investment are suddenly becoming very vulnerable. A risk, in my view, involved in all this is not really a sort of a Smoot-Hawley style tariff wall of the sort that we have known generations ago. The WTO constrains states on tariffs.

I think the greater risk and the greater threat of protectionism to the global economy, to trade and to investment is a rather more insidious one. It comes in the form of a competitive subsidy wall or a -- or regulatory protectionism, like "Buy America" -- or buy British or buy whatever it is -- or a retreat into domestic lending by banks that have been operating internationally, you know, directly or through subsidiaries. It's a sort of -- you know, a retreat into the sort of familiar confines of your home market, a retreat from the internationalism that has characterized international finance to date.

And this, in my view, is a pretty toxic combination of economic short-termism, economic nationalism and retrenchment, which in that sort of lethal combination has the potential, in my view, to do an enormous amount of lasting damage to global economic growth and our ability to sustain living standards at home, but also to generate growth and rising prosperity elsewhere in the world.

Now, this is not just like taking your foot off the gas, in other words, as far as growth is concerned. It's actually attacking the very engine of global growth. And I think the lesson of the 1930s is that protectionism might seem to treat the symptoms of the downturn, but it is a poison as far as global recovery is concerned, because it puts a structural check on future economic growth.

So I think the first challenge therefore for the London summit is to address this crisis in growth and demand and, in doing so, preserve the openness of the global economy. And therefore, I think that there are three priorities with this view in mind.

First, the G-20 should agree that fiscal stimuli, the sort of national recovery plans mounted in each of our countries, need to reinforce each other. There has to be an international sense and dimension to what we are doing, each of us, domestically. In the classic Keynesian model, a closed national economy stimulates its own falling demand, but our economies are now dependent on each other's demand. You know, we are not closed and insulated in the way and to the extent that we were generations ago. For example, you know, U.K. car industry sales -- something currently sort of close to my heart, as to any politician's heart who deals with the immediate repercussions of collapsing demand -- our sales won't recover unless European demand, and indeed Asian demand, for cars rises.

To be both fair and effective, therefore, stimuli have to reflect our interconnectedness in the global economy. In many respects, therefore, what we are doing is priming the global pump. And that is the dimension, that is the sort of different level, if you like, that we as politicians, as policymakers, need to climb up to, in order to understand both the importance of what we're doing, but also the greater effectiveness of our measures if we can multiply and reinforce what we're doing, each of us in our own economies, by means of international coordination amongst many economies. And that's why coordination, both on the principle of what we're doing and its timing, are very important.

Secondly, the G-20 should agree on the need to make sure that the stimuli take the right form and push in the right direction, that they reach into activities and sectors that will do most to strengthen our economies in the longer term -- in other words, to build tomorrow today in the measures that we are selecting to form part of our stimulus programs. For example, using fiscal stimuli to draw down on vital infrastructure investment and the transition to the creation of a low-carbon economy, as two examples; but there are others.

Job creation and job preservation are vital, but jobs need to be sustainable. They need to form part of bridges to our economic future, and not simply the ad hoc and the makeshift today.

There has to be, in other words, a sort of economic-industrial rationale for what we're doing today in order to strengthen our performance and productivity in the longer term. And I think in the main, the U.K. and the U.S. are both doing this intelligently.

And thirdly, I think the G-20 should commit to keeping the multilateral trading system open and cross-border investment flowing. It -- it's -- it may not be the conventional way of looking at a sort of demand stimulus, but I would argue that a world trade deal meets many of the criteria of an effective demand stimulus. I would actually call the Doha Round not a trade deal so much as another stimulus package for the world economy, and get it done, incidentally, in 2009.

So if you take -- bring all these things together, what I think we've got to think of our approach as is building a new roof for the global economy and not simply putting a patch on the old one. And I think that's what the London Summit has got to do and got to be, more than a patch for the roof but, you know, replacing the roof.

And I -- the reason I say this is because, you know, (I also ?) having just spent four years as Europe's trade commissioner, you know, perambulating my way around, you know, the world, in and out of all the emerging economies, as well as what my Indian counterpart used to call the submerging economies as well -- nice guy -- the fact is that the global economy has gotten miles ahead of effective economic governance in the world, both in terms of its approach to finance and its reflection of the basic balance of power in the global economy.

Again, three priorities, if I may suggest. One, financial markets are regional and they're global. And therefore, the warning systems that we put in place and employ in supervising, policing those financial markets, they need to be something other than and more than national as well.

We need to rethink the remit of international financial institutions. We need a strengthening of the IMF and the Financial Stability Forum in giving them a strong early warning role. And as well as reporting on national economic performance, the IMF needs to be assessing the levels of risk, too, in international financial markets, and flows between countries and global interaction with monetary and currency policy.

All this needs to be done in order to speak to and reflect the transformed global economy and international markets, which underpin economic activity and growth in the world today, but which, institutionally, we simply haven't kept up with and haven't addressed adequately for the times in which we live.

And I would also favor strengthening the ability of the World Bank, too, to lend to developing countries. But that's a separate or -- be a related issue.

Secondly, we need to rethink some of the basic frameworks for finance and banking at a global level, including Basel II, making capital allowances counter-cyclical so that they cool off lending in upturns and support lending in downturns, which they don't do adequately at the moment; assessing the rules about what liabilities can be kept off balance sheet; reform of the credit-ratings agencies, having rather sadly let us down; but also, I have to say, a cultural change in the financial-services industry, a different approach to risk and to reward.

And thirdly, we must have China, India and the other emerging economies around all these tables, engaging with us in these discussions and these decisions, too. You know, the basic Atlantic management model of the Bretton Woods system is simply no longer fit for the purpose that we need, which brings me to my last point, which is about coupling and decoupling.

I think last year -- even last year, you know, as I went around and talked to my counterparts in different countries and emerging economies, there was still a sort of -- a sort of, I don't know, wishful thinking, complacency, a sense of, "Well, we've taken off, we're leaving you behind," a sort of decoupling of the large, fast-growing economies from, you know, the old economies. I don't find people are talking so readily about decoupling now.

The only reason global growth is barely the right side of zero is because of demand from the emerging world. So they're not talking about decoupling in the way that they were. We certainly have no reason to talk about decoupling in the way that we might have imagined it were appropriate to do. As Chinese export growth is slowing, the consequent dent in its prosperity meant that its imports are falling more than twice as fast. So we stand and fall together. There is no such thing as decoupling in the world, and this crisis is bringing this home to us.

So I think in the next year, as a new U.S. administration sets about establishing its China policy and its foreign economic policy, I would make a very strong plea to the administration for a constructive approach to reach out internationally, to think not just of the next immediate sort of vote and challenge on this stimulus package or that provision or this part of the, you know, eight -- is it 800 pages, this stimulus package? What did you say?

STALEY: It's over 1,000.

MANDELSON: A thousand pages? Well, that's sort of pretty absorbing. (Laughter.) But I would just say that, you know, beyond that thousand pages, you know, there's a world out there which wants to and needs to engage with the United States in seeing how we can fix and replace the roof together.

And I think that what we have to make sure of is that the London Summit is a real turning point in our understanding, in our focus on these issues; one of those moments when an old order gives way to the new sort of pragmatically-governed order, you know, with a real sense of new purpose. And the U.S. will be absolutely vital to the success of that meeting, and the U.K. will be very committed indeed to making sure that we get as great a successful outcome from that meeting as we possibly can.

Thanks. (Applause.)

STALEY: Thank you, Peter. You know, a lot of people feel that the current economic crisis began in the financial sector, the U.S. financial sector, the global financial sector, and that, to some extent, to find the end we need to stabilize the financial sector. There's a lot of discussion here, and I imagine over in Europe, about nationalizing the banks, or are the banks effectively being nationalized. And you've got some very interesting issues in the U.K., some very different paths that banks are being asked to follow. How do you look at this whole issue of nationalizing the global financial system, or not?

MANDELSON: We don't want to nationalize our banks. We don't intend to nationalize our banks. And we hope and believe that it will be possible, through the measures that we're introducing, to avoid nationalizing our banks. I think that's clear. (Chuckles.)

Recapitalize? Yes. Reinject fresh liquidity? Yes. Give guarantees and take on some of the shared risk in boosting lending to the corporate sector by our banks.

But nationalization, no, is not something that we are seeking, because we believe that the banks belong in the private sector. They need to operate on the basis of and with commercial disciplines. They need to operate on the basis of established conventional banking practice, you know, without some of the more recent sort of additions to that banking practice which we can well do without.

So whilst it is true the -- in the case of two of our banks, the government has a sort of holding below 50 percent in one, just above 60 in the other, we remain confident that the measures that we're operating will enable the banks both to get back on their feet in resuming normal activity and will enable us to withdraw from what at the moment is a very arm's-length relationship between the banks and the government on the basis of that (holding ?) and trust to return those banks completely to the market in due course.

STALEY: How difficult is it as a political leader to face -- on the one hand you want to get the banks to become normal again and functioning. On the other hand, there is tremendous anger and a sense that the financial community led us down this path. And so you see the political body not really quite yet ready to accept that banks should be helped. So on the one hand, you've got to get the banks in a good position. On the other hand, it does seem like there's a lot of political pressure to continue to sort of punish the financial system for getting us where we are today. Do you feel that?

MANDELSON: Do I feel I want to sort of take these bankers in my hand? (Laughter.) But I jest. I don't feel --

STALEY: We are on the record. (Laughs, laughter.)

MANDELSON: Thanks for reminding me. (Laughter.)

Look, it's difficult with the public. I mean, you know that here. You know, to many in the public, they feel, why are we throwing money; why are we rewarding; you know, why are we bailing out these banks that have crucified our economy, you know, whose actions and failure are pushing banks to the wall, people out of their jobs and out of their homes, you know? And for how long in generations to come are we going to be having to pick up the tab for this current generosity that we're offering to banks that have got us into this mess?

My answer to that is that until and unless we fix the banks, we're not going to be able to fix anything else in our economy. And painful and unpalatable as that is, the truth is, is that the banks and the system of credit that provides the basis for a functioning economy like our own requires the banks to be repaired and to get back into proper functioning order.

What I think the sort of equally interesting if not more interesting question is, is what we mean by proper functioning order. Are the banks going to be operating in the same way in the future? Is their business model that we have become familiar with going to remain broadly as it is or is there going to be a process of reinvention of the banking model?

Now, I'm not a banker. I'm a politician. And about now, you know, in the sort of annals of public esteem, I mean, bankers and politicians are just about -- (laughter) -- together, of course, with estate agents and journalists -- (laughter) -- we're all the sort of scrub -- trying to get our support down there in the basement somewhere.

I can't predict what that new model is going to be, but I would simply suggest that there will be a reinvention. And I you asked me to put money on it, that reinvention will probably come from and be led here in the United States. The United States is a wonderfully adaptable and adapting society and economy. We of course want to work with the United States in taking on this work. But the United States, in my view, in my experience, is a country that very quickly comes to terms with its weaknesses and its flaws, and sets about repairing them. And that's what I think we're going to see in relation to the banks here. And that will provide strong leadership for the rest of the financial community and international banking system throughout the world.

I hope I'm not being overly confident. (Laughter.) I hope my confidence will be fully justified.

STALEY: We need that overconfidence these days. So that's good that -- it's good to see.

The -- you've been a champion of free trade and global trade for many, many years. When you look at the stimulus package that recently -- to be signed today in the United States, and you look at the packages that are coming out of different members of the European Union, how worried are you that protectionism through the backdoor, through the side door, is going to reemerge and roll back so many of the accomplishments that you and others have made over the last decade?

MANDELSON: I really don't think we're going to see the -- this classic expression of protectionism, as I said, in the form of, you know, new or raised tariffs being imposed to block trade. You -- we will see a little bit of that. And certainly all of us have to tread a narrow line between, you know, "Buy American" and "Keep others' goods out of our markets."

You know, I say, when I'm asked about this in Britain, I don't mind inviting people to buy British. I don't do it overly much. It's not my stock in trade. But I don't mind saying, "Buy British." After all, consumers have a choice, and where there are good British-made goods to be had, or services to be bought, take them.

But you have to understand too, as a politician, that for many there's a small step between that exhortation and the next step, which is to say others should be kept out, limit choice, keep them away from your borders.

And in Europe in particular it's absolutely vital that we withstand those pressures. Look, the most important economic construction that we have made in Europe is our single market; a single market of what, 500-odd million people; that free flow of trade, of goods, of people and capital across that huge economic space, the biggest of its kind anywhere in the world.

And you can see the dangers, the threats of that single market being eroded around the edges and people sort of inching in from its boundaries, potentially to its core, if we are not absolutely vigilant in expanding those pressures.

So I will have a problem, as other European member states introduce major stimulus programs -- other people call them bailout programs -- for different industrial sectors -- and want to offer this largess or this benefit or that advantage, for these workers or for that manufacturing or that sector.

What am I supposed to do, sit back, watch them get on with it and put my own people and manufacturers at a competitive disadvantage within the European single markets? It will be a disaster.

We will very quickly see the very principle and essence of the market eroded, as ministers like myself are then sort of pitched into a sort of competitive bidding war, a sort of auction as multi-national companies for example say, well, look, you know, we have a plant here; we have a plant there, a bit of Spain, a bit of Germany, a bit of France, north of England. Which one are we going to close? How are you going to help us make our decision?

Now, therein lies a real danger. I mean, we are poisoned if we allow that to get out of hand.

STALEY: You talked about Doha and the importance of that. How do you handicap the likelihood of that being finally approved in 2009? What are some of the politically courageous things that need to happen, to get that across the end line? And do you have an early sense of the Obama administration's views towards the Doha agreements?

SEN. MANDELSON: Some of us tried to mobilize a bit of tacit, behind-the-scenes support, from the incoming administration, before they took office at the end of last year, in order to just add a bit of courage to the outgoing administration, in helping us carry this Doha deal over the touch line at the end of last year.

The administration, I'm quite sure, for perfectly good reasons of propriety declined to help, which left us with an outgoing administration that, I'm afraid, was keener to focus on the difficulties and pitfalls, such as they were, of concluding this breakthrough negotiation, rather than the opportunities at stake and the important signal, in my view, that it would send to the rest of the world that, you know, the global economy was going to remain open for business and for trade.

I don't think it would have cost anyone very much politically in this country. The agricultural levies have long since been brought up in the negotiations to date.

Yes, there might have been a little disappointment from manufacturers. But set that against the importance of anchoring the developing countries, the emerging economies firmly in the system of international trade rules and negotiation, putting a cap, a ceiling, above which they and all of us would be unable to push tariffs up in the future. These things are real gains, commercial gains, systemic gains, psychological gains for the world economy. It would really have cost the administration barely a nickel to conclude this at the end of last year and it was a great disappointment to me and others that they didn't.

This now -- this ball has now been passed the new president's administration. I hope they'll make it a priority this year.

STALEY: Let me open up for a couple of questions. There are mikes that can be passed around. If you can state your name and who you're affiliated with -- I think we have one up here.

QUESTIONER: Thank you. Barbara Samuels, ex-banker, Chase, and, for my sins, vice chairman of the U.N. Financing for Development Business Steering Committee. I wanted to push a little bit on your analogy of a roof and ask whether the analogy isn't to create a working factory, again, between the private and public sector, because if we're going to be successful, many of the very technical things you talked about -- the shut down in trade, historical, never happened before with any of our Latin American, Asian crises; infrastructure, again, it's very much on operational level; risk management. And as you now look at the conflict between the G-20, the G-7 and, of course, the Stiglitz commission at the U.N., the interplay is very often political.

So it would be very helpful to see your sense of the interface on a technical level with the private sector so we have a reinvention that really delivers results. And in that regard, if you look at risk mitigation and coherence, using the development agencies going from a national to an international stimulus program -- you know, we've been trying to work very hard so we can use the development agencies to increase infrastructure finance in Africa and the developing countries. Any thoughts on that would be really wonderful.

MANDELSON: Yes. I think my thoughts on that -- and I was talking to Joe Stiglitz about this last night. I think that he, his commission and the U.N. system have an important contribution to make to this, not only for sort of -- sort of in a political sense, in that we have to create stakeholders in this economic recovery, but using the recovery to help take forward those sort of structural changes in the international economy that are happening anyway but should be accelerated, but also should be, you know, unfolded in a coherent way and in a collaborative way -- collaborative both in terms of developed and developing world, but governments and private sector, because no one's going to be able to make the achievements that they seek by acting separately and alone from each other.

So I think this is very important. And I know that also when you have debates like this, it, you know, almost invariably boils down to money and resources, and that's important. I don't dismiss the importance of resources and redistribution. I am a redistributionist in that sense, internationally.

But I'm afraid that four years of negotiating trade agreements and trying to promote the integration of developing countries and the emerging economies into the international system has taught me that resources, whilst important, are not sufficient. You need policy. You need an outlook, an attitude of mind amongst the developing countries which takes their progression into and further integration to the international system more seriously than we see in some cases.

I'm choosing my words very carefully here. You know, but a lot of this comes down to good governance. It comes down to good policy. It comes down to good frameworks of policy within the developing countries. And I simply refuse to be one of those who says as long as you spend more or give more, you're going to be able to put in place solutions to the needs of developing countries and the many millions of poor who live in them.

It requires some good policies, good judgment calls, strong political will and a determination on the parts of governments in those countries, as well as a lot of cooperation and reaching out by us, to bring about the success that they need.

STALEY: There you go.

QUESTIONER: Milord, Samuel Pisar, an international lawyer in London, Paris and New York, you know. What can you expect, in terms of European and transatlantic cohesion, for the London Summit, given the clash of interests and open clash of personalities in Europe?

President Sarkozy behaves like a permanent president of the European Union -- activist, not to say frenetic. President Klaus of the Czech Republic, who is the rotating chairman of Europe, can hardly get a word in edgewise; Mr. Brown is in open tension with the French president; and even the duo of Germany and France is undergoing a very difficult series of clashes -- and all of this while Sarkozy is taking France back into the military-commanded NATO.

Whatever comment you can make. And I remind you that for this one you really have to be very cautious. (Laughter.)

MANDELSON: Well, I, of course, wouldn't accept all your characterizations of -- of the individuals you identify and their relationships. Actually, it's to the prime minister of the Czech Republic that we look to leadership during the Czech presidency, rather than President Klaus.

And as to the relationship between President Sarkozy and Prime Minister Brown, you're simply not right. I mean, they -- there's a very strong overlap in their view. There is a strong preference as expressed by President Sarkozy for the London Summit to prioritize new forms of international financial regulation, it's true. But then we all accept, you know, stronger new forms of international financial regulation as desirable.

And I think that, you know, whereas once at the turn of the year you might have been able to say that Chancellor Merkel was perhaps more reluctant in coming along with the fiscal stimulus measures adopted both in Britain and in France, and now in the United States, she's certainly caught up with the national stimulus package of her own in Germany.

But can I just say -- this is a general observation -- these are really complex issues. You know, the idea that -- you know, that there are sort of blueprints or manuals or precedents that you can just sort of pull down from the shelves and say, "Right, this is how we've done it before when we've experienced similar crises; you know, let's just sort of do it again, but do it joined up and in a coordinated way," it's not as simple as that.

And in politics it really is very difficult, because of course while governments need to take time to plan carefully, they're constantly accused of dragging their feet because they're not making instant decisions and producing policies that have instant results. But these policies are not capable of producing instant results -- and of course, at the same time whilst everyone is impatient to know the exact scale of the banks' assets writedown.

You know, this (normally/nominally ?) can't be established and priced in such a sort of straightforward way. But those who, you know, who do start speculating about the sort of scale of the crisis and writedowns necessary, run the risk of contributing to a further loss of confidence and panic in the markets.

So I suppose what I'm really saying is that, you know, everyone is focused, but they're picking their way through this in a necessarily careful way; that there's no competition between European and world leaders as to, you know, who wins the race to get to the -- you know, to the finishing line with the -- you know, with the fastest-acting policies first. Because you don't know what the fastest-acting policies are. You don't know what constitutes the finishing line in this. Anyone who says that they can, you know, offer up predictions about, you know, what the perfect policies are, when they're perfectly going to start delivering their results and we're going to start climbing out of this, you know, frankly is an idiot.

So let's not start competing in sort of -- in idiocy, as it were. Let's just sort of think and act in as joined-up a way as we can so that we make the very best of a bad job and enable our economies, all of them, to get through this recession as quickly and painlessly as possible.

QUESTIONER: My name is Morris Hekra (ph) and I'm a member of the shrinking roll of the print media.

MANDELSON: After you've dealt with the cars, we're going to come on to the --

QUESTIONER: Yes. Yeah. We're -- I think government guarantees of advertising would be an enormous -- (laughter).

MANDELSON: Honestly, it's next on our list. (Laughter.)

QUESTIONER: Securitization has been a global phenomenon of finance. It was 50 percent, $2.8 trillion, of American finance in the year 2007, and it's collapsed to zero. We're beginning to try and revive this market. I wonder what the policies of your government are to contribute to that revival, if you think it is appropriate.

MANDELSON: I think it is appropriate. We should not shut out this sort of legitimate trade. But it has to operate in a way that doesn't cause us further trouble down the line. I mean, don't trade in what you don't understand and what you don't comprehend. If you can't value it, try and, you know, do without it.

And secondly, operate your banks in a way that enables you, if possible, to separate out the different activities of the banks so that when something goes wrong in one part, it doesn't set the rest of the bank's activities down like a pack of cards -- would be my off-the-cuff response.

QUESTIONER: Thank you. Merit Janow, Columbia University and formerly of the WTO. Look, I very much agree with your view of what the risks are in the current environment, and my question is whether you could say a bit more about the concrete measures that you think could be taken at the summit to address some of those risks. I'm hearing talk of perhaps trying to create some sort of additional trade financing facility or some sort of college of regulators, including the U.S., or other concrete measures, because I'm a bit concerned. I would strongly support a Doha statement, but I'm sensing the absence of real political will to engage, and thus it would seem very important to come up with concrete measures that would address the immediate risks that we're taking or trying to, you know, define what are temporary supports that the world can live with or think about what our exit strategies -- some things that deal concretely with the problems we are facing in the near term. Could you say a bit more about that?

MANDELSON: Well, first of all, financing trade, which is absolutely essential, requires a platform of international banking and a system of functioning international finance, without which trade can't and will not take place. And that's why I find it, you know, very, very disturbing that the reaction to the crisis now has been a sort of retreat, as it were, to home markets. At -- you know, the capacity, capability of the international banking and financial system and its markets to bring capital to the emerging economies, the finance for their trade is absolutely essential for their continued growth.

And we need that growth. We need that growth because they're picking up the slack in the falling state of demand in the global economy. But in the future, you know, our ability to sell our goods, supply our services, gain work for our people internationally depends on these countries and their economies continuing to grow.

And that's why, you know, I always say and said when I was the trade commissioner -- I used to say it to my -- many of my, you know, friends and colleagues in Europe, but I used to say it here and on the Hill as well, you know -- you know, China's growth doesn't frighten me. What frightens me more is China's growth stalling. And I could say the same for the other emerging economies as well.

Now, just on -- just on Doha, look, we will be in a better position when have a confirmed USTR. We will be in a better position when we're on the other side of the Indian general elections, by the way. And I think that if we can find -- draw on fresh leadership both in the United States and in India -- I'm not picking out -- singling out any two countries in particular. They're just two that happened to come to mind. If we can find some stronger leadership from those countries, I think we will be able to overcome the stand-off and stalemate that, I'm afraid, emerged in the -- during the course of the negotiations in the second half of last year between those two negotiators.

And it's possible that it's -- above all, it's really desirable and important to send a really important signal to people this year.

STALEY: Here you go.

QUESTIONER: John Beatty from UBS. One of the issues that hasn't been discussed is the symbiotic trade relationship that existed between the United States and China prior to the crisis. This unsustainable relationship depended on U.S. consumers, on the one hand, buying Chinese goods and the Chinese government, on the other hand, financing the U.S. current account deficit.

Of course, these days, the American consumers are saving rather than spending. So in terms of reforming or talking about restarting the international trade system, how would you do this if consumers in the United States and other countries, like the European Union, do not have the resources to spend, but are rather saving?

MANDELSON: Well, let me make a couple of points. First of all, the -- these global imbalances that you describe did indeed provide the last part of the context in which this -- from which this crisis has emerged. But I think we would be wrong in concluding that it was the imbalances themselves that were the cause or the trigger of the banking crisis, just as I believe it is wrong to say that it was a regulatory failure that has caused the -- this crisis, that the crisis germinated in the banks themselves.

Now, of course the regulators should have picked up on this, and the sorts of international reforms that we would like to see -- proper national supervision, with proper coordination amongst regulators internationally, so that you have a better-functioning early warning system operating from which you can pick up, you know, the flashing lights and take the appropriate action within and amongst regulators is exactly the sort of direction in which we need to go.

But just because we need different regulatory systems and links between and amongst our regulators, and just as -- because it would be ideal if Chinese consumers could spend a bit more, I think we have to understand, I mean, that that change in China is not going to take place quickly or easily. If anything, the crisis that has hit China is going to make many even more prudent.

And just understand, just for one moment, why people have a tendency to save in China. It's because they don't have the social safety nets, the education systems, the older age provisions made for them. You know, you save in order to survive and into your later life and to give your children, you know, some sort of a break.

Now, of course we would like to see evolving a different model of Chinese growth which is less dependent on exports and more dependent on domestic consumption. And I think, you know, China will evolve in that direction. But don't hold your breath for any dramatic changes soon.

STALEY: The council is known for timeliness, so we are at 9:00. I want to say I'm sure many members here believe very much in the free market system and in global trade and the economies working cooperatively. You're a champion of that, so we can only wish you the greatest of success this year.

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THIS IS A RUSH TRANSCRIPT.

JES E. STALEY: Welcome to today's CFR meeting. A couple housekeeping items: First, if people can turn off the ubiquitous BlackBerrys and cell phones; they can interfere with the audio system. We'd also like to remind everybody, the members, that this meeting is on the record.

The structure of this meeting is Peter will make some formal remarks for sort of 10 or 15 minutes and then we'll have a Q and A session and then open it up to the audience's questions.

It's a great honor to be able to introduce our speaker today, Lord Mandelson. He is an old friend of the CFR, but he is here for the first time in his new role as British secretary of state for business, enterprise and regulatory reform. Lord Mandelson was recently called to the U.K. to join the cabinet. He left Brussels, where, as we all know, for the last four years or so he was the European Union's trade commissioner at a pretty fascinating time.

These are extraordinary events that we are living through. And one aspect which I think is somewhat unique is how this financial crisis is indeed so global and has touched all nations seemingly at the same time and with great severity. Given that, the comments that Lord Mandelson will make this morning are probably as applicable here as they are in the U.K. and in Europe.

So without further ado, Lord Mandelson. (Applause.)

PETER B. MANDELSON: Jes, thank you very much, indeed, for your welcome. And good morning, everyone. And thank you in particular for reminding me that everything that I say is on the record. In case I sort of stray during the course of the next hour into excessive candor, I'd be grateful if you could remind me that everything is on the record, so that I can, you know, just sort of reimpose some self-discipline.

Let me offer you some observations for 10, 15 minutes and then engage with you.

I think it says something about what's happening in the global economy and the changing political landscape of the global economy and it says something about the G-7 finance ministers at the weekend that the main outcome of that meeting seems to have been that whereas that sort of previous high command of the G-7 would have been tracked with great anticipation, its main outcome seemed to be that it was simply a staging post for the next meeting of the new steering committee of the global economy being formed with the G-20. And I think that says quite a lot, that we are moving from an era of G-7 to an era of G-20, and that we have to wake up and take notice of this change, which is, in my view, quite a profound one and to take greater notice of what others are saying.

Two weeks ago we had in London Premier Wen Jiabao, who came with a group of very senior ministers. I was struck by the premier's tough, confident line on the flaw in Western banking system and regulatory systems, not only in London but during his European tour.

Our first reaction to this, I think, in the United States and in the European Union, when we have such sort of strictures taken to us, is probably to be defensive, I think not least because China's own economic model is hardly flawless.

But a lot of the criticism, once we've got over our initial sort of defensive reaction to these strictures, is, I think, to accept that much of the criticism is fair enough, and more importantly, the debate it's engaging is a reflection of a fundamental shift in the balance of economic weight in the global economy.

And this is a new reality, and while its first test will be at the London meeting of the G-20 on the 2nd of April, following the previous November meeting in Washington, the truth is that Copenhagen and the climate change negotiations will follow on pretty quickly.

So I think we have just to bear this in mind: that insofar as we can make the G-20's role in relation to the global economy a success, that will have a positive knock-on effect on Copenhagen and the climate change negotiations, and of course, conversely, if we don't make a success of the G-20 in April, that too is going to have a negative knock-on effect on everything else that we're taking on in trying to navigate our way through in the challenges that our world is facing.

So what is the London meeting going to be about? Well, London's big problem, London's big challenge, what we are confronted with, is, in my opinion, nothing less than a risk -- a sharp risk of dismantling or at least damaging the global economic machine: the risk of deglobalization.

We have a crisis, as we all know, in the global real economy. It started in the financial markets, as we know too. And we also know that it's turning into something much worse and that the sort of bottom is -- the floor is being sort of taken out of global growth. Trade is set to go -- move into reverse in the global economy for the first time since 1982.

Now, after, therefore, a 20-year bull market, the core engines of growth, trade and international investment are suddenly becoming very vulnerable. A risk, in my view, involved in all this is not really a sort of a Smoot-Hawley style tariff wall of the sort that we have known generations ago. The WTO constrains states on tariffs.

I think the greater risk and the greater threat of protectionism to the global economy, to trade and to investment is a rather more insidious one. It comes in the form of a competitive subsidy wall or a -- or regulatory protectionism, like "Buy America" -- or buy British or buy whatever it is -- or a retreat into domestic lending by banks that have been operating internationally, you know, directly or through subsidiaries. It's a sort of -- you know, a retreat into the sort of familiar confines of your home market, a retreat from the internationalism that has characterized international finance to date.

And this, in my view, is a pretty toxic combination of economic short-termism, economic nationalism and retrenchment, which in that sort of lethal combination has the potential, in my view, to do an enormous amount of lasting damage to global economic growth and our ability to sustain living standards at home, but also to generate growth and rising prosperity elsewhere in the world.

Now, this is not just like taking your foot off the gas, in other words, as far as growth is concerned. It's actually attacking the very engine of global growth. And I think the lesson of the 1930s is that protectionism might seem to treat the symptoms of the downturn, but it is a poison as far as global recovery is concerned, because it puts a structural check on future economic growth.

So I think the first challenge therefore for the London summit is to address this crisis in growth and demand and, in doing so, preserve the openness of the global economy. And therefore, I think that there are three priorities with this view in mind.

First, the G-20 should agree that fiscal stimuli, the sort of national recovery plans mounted in each of our countries, need to reinforce each other. There has to be an international sense and dimension to what we are doing, each of us, domestically. In the classic Keynesian model, a closed national economy stimulates its own falling demand, but our economies are now dependent on each other's demand. You know, we are not closed and insulated in the way and to the extent that we were generations ago. For example, you know, U.K. car industry sales -- something currently sort of close to my heart, as to any politician's heart who deals with the immediate repercussions of collapsing demand -- our sales won't recover unless European demand, and indeed Asian demand, for cars rises.

To be both fair and effective, therefore, stimuli have to reflect our interconnectedness in the global economy. In many respects, therefore, what we are doing is priming the global pump. And that is the dimension, that is the sort of different level, if you like, that we as politicians, as policymakers, need to climb up to, in order to understand both the importance of what we're doing, but also the greater effectiveness of our measures if we can multiply and reinforce what we're doing, each of us in our own economies, by means of international coordination amongst many economies. And that's why coordination, both on the principle of what we're doing and its timing, are very important.

Secondly, the G-20 should agree on the need to make sure that the stimuli take the right form and push in the right direction, that they reach into activities and sectors that will do most to strengthen our economies in the longer term -- in other words, to build tomorrow today in the measures that we are selecting to form part of our stimulus programs. For example, using fiscal stimuli to draw down on vital infrastructure investment and the transition to the creation of a low-carbon economy, as two examples; but there are others.

Job creation and job preservation are vital, but jobs need to be sustainable. They need to form part of bridges to our economic future, and not simply the ad hoc and the makeshift today.

There has to be, in other words, a sort of economic-industrial rationale for what we're doing today in order to strengthen our performance and productivity in the longer term. And I think in the main, the U.K. and the U.S. are both doing this intelligently.

And thirdly, I think the G-20 should commit to keeping the multilateral trading system open and cross-border investment flowing. It -- it's -- it may not be the conventional way of looking at a sort of demand stimulus, but I would argue that a world trade deal meets many of the criteria of an effective demand stimulus. I would actually call the Doha Round not a trade deal so much as another stimulus package for the world economy, and get it done, incidentally, in 2009.

So if you take -- bring all these things together, what I think we've got to think of our approach as is building a new roof for the global economy and not simply putting a patch on the old one. And I think that's what the London Summit has got to do and got to be, more than a patch for the roof but, you know, replacing the roof.

And I -- the reason I say this is because, you know, (I also ?) having just spent four years as Europe's trade commissioner, you know, perambulating my way around, you know, the world, in and out of all the emerging economies, as well as what my Indian counterpart used to call the submerging economies as well -- nice guy -- the fact is that the global economy has gotten miles ahead of effective economic governance in the world, both in terms of its approach to finance and its reflection of the basic balance of power in the global economy.

Again, three priorities, if I may suggest. One, financial markets are regional and they're global. And therefore, the warning systems that we put in place and employ in supervising, policing those financial markets, they need to be something other than and more than national as well.

We need to rethink the remit of international financial institutions. We need a strengthening of the IMF and the Financial Stability Forum in giving them a strong early warning role. And as well as reporting on national economic performance, the IMF needs to be assessing the levels of risk, too, in international financial markets, and flows between countries and global interaction with monetary and currency policy.

All this needs to be done in order to speak to and reflect the transformed global economy and international markets, which underpin economic activity and growth in the world today, but which, institutionally, we simply haven't kept up with and haven't addressed adequately for the times in which we live.

And I would also favor strengthening the ability of the World Bank, too, to lend to developing countries. But that's a separate or -- be a related issue.

Secondly, we need to rethink some of the basic frameworks for finance and banking at a global level, including Basel II, making capital allowances counter-cyclical so that they cool off lending in upturns and support lending in downturns, which they don't do adequately at the moment; assessing the rules about what liabilities can be kept off balance sheet; reform of the credit-ratings agencies, having rather sadly let us down; but also, I have to say, a cultural change in the financial-services industry, a different approach to risk and to reward.

And thirdly, we must have China, India and the other emerging economies around all these tables, engaging with us in these discussions and these decisions, too. You know, the basic Atlantic management model of the Bretton Woods system is simply no longer fit for the purpose that we need, which brings me to my last point, which is about coupling and decoupling.

I think last year -- even last year, you know, as I went around and talked to my counterparts in different countries and emerging economies, there was still a sort of -- a sort of, I don't know, wishful thinking, complacency, a sense of, "Well, we've taken off, we're leaving you behind," a sort of decoupling of the large, fast-growing economies from, you know, the old economies. I don't find people are talking so readily about decoupling now.

The only reason global growth is barely the right side of zero is because of demand from the emerging world. So they're not talking about decoupling in the way that they were. We certainly have no reason to talk about decoupling in the way that we might have imagined it were appropriate to do. As Chinese export growth is slowing, the consequent dent in its prosperity meant that its imports are falling more than twice as fast. So we stand and fall together. There is no such thing as decoupling in the world, and this crisis is bringing this home to us.

So I think in the next year, as a new U.S. administration sets about establishing its China policy and its foreign economic policy, I would make a very strong plea to the administration for a constructive approach to reach out internationally, to think not just of the next immediate sort of vote and challenge on this stimulus package or that provision or this part of the, you know, eight -- is it 800 pages, this stimulus package? What did you say?

STALEY: It's over 1,000.

MANDELSON: A thousand pages? Well, that's sort of pretty absorbing. (Laughter.) But I would just say that, you know, beyond that thousand pages, you know, there's a world out there which wants to and needs to engage with the United States in seeing how we can fix and replace the roof together.

And I think that what we have to make sure of is that the London Summit is a real turning point in our understanding, in our focus on these issues; one of those moments when an old order gives way to the new sort of pragmatically-governed order, you know, with a real sense of new purpose. And the U.S. will be absolutely vital to the success of that meeting, and the U.K. will be very committed indeed to making sure that we get as great a successful outcome from that meeting as we possibly can.

Thanks. (Applause.)

STALEY: Thank you, Peter. You know, a lot of people feel that the current economic crisis began in the financial sector, the U.S. financial sector, the global financial sector, and that, to some extent, to find the end we need to stabilize the financial sector. There's a lot of discussion here, and I imagine over in Europe, about nationalizing the banks, or are the banks effectively being nationalized. And you've got some very interesting issues in the U.K., some very different paths that banks are being asked to follow. How do you look at this whole issue of nationalizing the global financial system, or not?

MANDELSON: We don't want to nationalize our banks. We don't intend to nationalize our banks. And we hope and believe that it will be possible, through the measures that we're introducing, to avoid nationalizing our banks. I think that's clear. (Chuckles.)

Recapitalize? Yes. Reinject fresh liquidity? Yes. Give guarantees and take on some of the shared risk in boosting lending to the corporate sector by our banks.

But nationalization, no, is not something that we are seeking, because we believe that the banks belong in the private sector. They need to operate on the basis of and with commercial disciplines. They need to operate on the basis of established conventional banking practice, you know, without some of the more recent sort of additions to that banking practice which we can well do without.

So whilst it is true the -- in the case of two of our banks, the government has a sort of holding below 50 percent in one, just above 60 in the other, we remain confident that the measures that we're operating will enable the banks both to get back on their feet in resuming normal activity and will enable us to withdraw from what at the moment is a very arm's-length relationship between the banks and the government on the basis of that (holding ?) and trust to return those banks completely to the market in due course.

STALEY: How difficult is it as a political leader to face -- on the one hand you want to get the banks to become normal again and functioning. On the other hand, there is tremendous anger and a sense that the financial community led us down this path. And so you see the political body not really quite yet ready to accept that banks should be helped. So on the one hand, you've got to get the banks in a good position. On the other hand, it does seem like there's a lot of political pressure to continue to sort of punish the financial system for getting us where we are today. Do you feel that?

MANDELSON: Do I feel I want to sort of take these bankers in my hand? (Laughter.) But I jest. I don't feel --

STALEY: We are on the record. (Laughs, laughter.)

MANDELSON: Thanks for reminding me. (Laughter.)

Look, it's difficult with the public. I mean, you know that here. You know, to many in the public, they feel, why are we throwing money; why are we rewarding; you know, why are we bailing out these banks that have crucified our economy, you know, whose actions and failure are pushing banks to the wall, people out of their jobs and out of their homes, you know? And for how long in generations to come are we going to be having to pick up the tab for this current generosity that we're offering to banks that have got us into this mess?

My answer to that is that until and unless we fix the banks, we're not going to be able to fix anything else in our economy. And painful and unpalatable as that is, the truth is, is that the banks and the system of credit that provides the basis for a functioning economy like our own requires the banks to be repaired and to get back into proper functioning order.

What I think the sort of equally interesting if not more interesting question is, is what we mean by proper functioning order. Are the banks going to be operating in the same way in the future? Is their business model that we have become familiar with going to remain broadly as it is or is there going to be a process of reinvention of the banking model?

Now, I'm not a banker. I'm a politician. And about now, you know, in the sort of annals of public esteem, I mean, bankers and politicians are just about -- (laughter) -- together, of course, with estate agents and journalists -- (laughter) -- we're all the sort of scrub -- trying to get our support down there in the basement somewhere.

I can't predict what that new model is going to be, but I would simply suggest that there will be a reinvention. And I you asked me to put money on it, that reinvention will probably come from and be led here in the United States. The United States is a wonderfully adaptable and adapting society and economy. We of course want to work with the United States in taking on this work. But the United States, in my view, in my experience, is a country that very quickly comes to terms with its weaknesses and its flaws, and sets about repairing them. And that's what I think we're going to see in relation to the banks here. And that will provide strong leadership for the rest of the financial community and international banking system throughout the world.

I hope I'm not being overly confident. (Laughter.) I hope my confidence will be fully justified.

STALEY: We need that overconfidence these days. So that's good that -- it's good to see.

The -- you've been a champion of free trade and global trade for many, many years. When you look at the stimulus package that recently -- to be signed today in the United States, and you look at the packages that are coming out of different members of the European Union, how worried are you that protectionism through the backdoor, through the side door, is going to reemerge and roll back so many of the accomplishments that you and others have made over the last decade?

MANDELSON: I really don't think we're going to see the -- this classic expression of protectionism, as I said, in the form of, you know, new or raised tariffs being imposed to block trade. You -- we will see a little bit of that. And certainly all of us have to tread a narrow line between, you know, "Buy American" and "Keep others' goods out of our markets."

You know, I say, when I'm asked about this in Britain, I don't mind inviting people to buy British. I don't do it overly much. It's not my stock in trade. But I don't mind saying, "Buy British." After all, consumers have a choice, and where there are good British-made goods to be had, or services to be bought, take them.

But you have to understand too, as a politician, that for many there's a small step between that exhortation and the next step, which is to say others should be kept out, limit choice, keep them away from your borders.

And in Europe in particular it's absolutely vital that we withstand those pressures. Look, the most important economic construction that we have made in Europe is our single market; a single market of what, 500-odd million people; that free flow of trade, of goods, of people and capital across that huge economic space, the biggest of its kind anywhere in the world.

And you can see the dangers, the threats of that single market being eroded around the edges and people sort of inching in from its boundaries, potentially to its core, if we are not absolutely vigilant in expanding those pressures.

So I will have a problem, as other European member states introduce major stimulus programs -- other people call them bailout programs -- for different industrial sectors -- and want to offer this largess or this benefit or that advantage, for these workers or for that manufacturing or that sector.

What am I supposed to do, sit back, watch them get on with it and put my own people and manufacturers at a competitive disadvantage within the European single markets? It will be a disaster.

We will very quickly see the very principle and essence of the market eroded, as ministers like myself are then sort of pitched into a sort of competitive bidding war, a sort of auction as multi-national companies for example say, well, look, you know, we have a plant here; we have a plant there, a bit of Spain, a bit of Germany, a bit of France, north of England. Which one are we going to close? How are you going to help us make our decision?

Now, therein lies a real danger. I mean, we are poisoned if we allow that to get out of hand.

STALEY: You talked about Doha and the importance of that. How do you handicap the likelihood of that being finally approved in 2009? What are some of the politically courageous things that need to happen, to get that across the end line? And do you have an early sense of the Obama administration's views towards the Doha agreements?

SEN. MANDELSON: Some of us tried to mobilize a bit of tacit, behind-the-scenes support, from the incoming administration, before they took office at the end of last year, in order to just add a bit of courage to the outgoing administration, in helping us carry this Doha deal over the touch line at the end of last year.

The administration, I'm quite sure, for perfectly good reasons of propriety declined to help, which left us with an outgoing administration that, I'm afraid, was keener to focus on the difficulties and pitfalls, such as they were, of concluding this breakthrough negotiation, rather than the opportunities at stake and the important signal, in my view, that it would send to the rest of the world that, you know, the global economy was going to remain open for business and for trade.

I don't think it would have cost anyone very much politically in this country. The agricultural levies have long since been brought up in the negotiations to date.

Yes, there might have been a little disappointment from manufacturers. But set that against the importance of anchoring the developing countries, the emerging economies firmly in the system of international trade rules and negotiation, putting a cap, a ceiling, above which they and all of us would be unable to push tariffs up in the future. These things are real gains, commercial gains, systemic gains, psychological gains for the world economy. It would really have cost the administration barely a nickel to conclude this at the end of last year and it was a great disappointment to me and others that they didn't.

This now -- this ball has now been passed the new president's administration. I hope they'll make it a priority this year.

STALEY: Let me open up for a couple of questions. There are mikes that can be passed around. If you can state your name and who you're affiliated with -- I think we have one up here.

QUESTIONER: Thank you. Barbara Samuels, ex-banker, Chase, and, for my sins, vice chairman of the U.N. Financing for Development Business Steering Committee. I wanted to push a little bit on your analogy of a roof and ask whether the analogy isn't to create a working factory, again, between the private and public sector, because if we're going to be successful, many of the very technical things you talked about -- the shut down in trade, historical, never happened before with any of our Latin American, Asian crises; infrastructure, again, it's very much on operational level; risk management. And as you now look at the conflict between the G-20, the G-7 and, of course, the Stiglitz commission at the U.N., the interplay is very often political.

So it would be very helpful to see your sense of the interface on a technical level with the private sector so we have a reinvention that really delivers results. And in that regard, if you look at risk mitigation and coherence, using the development agencies going from a national to an international stimulus program -- you know, we've been trying to work very hard so we can use the development agencies to increase infrastructure finance in Africa and the developing countries. Any thoughts on that would be really wonderful.

MANDELSON: Yes. I think my thoughts on that -- and I was talking to Joe Stiglitz about this last night. I think that he, his commission and the U.N. system have an important contribution to make to this, not only for sort of -- sort of in a political sense, in that we have to create stakeholders in this economic recovery, but using the recovery to help take forward those sort of structural changes in the international economy that are happening anyway but should be accelerated, but also should be, you know, unfolded in a coherent way and in a collaborative way -- collaborative both in terms of developed and developing world, but governments and private sector, because no one's going to be able to make the achievements that they seek by acting separately and alone from each other.

So I think this is very important. And I know that also when you have debates like this, it, you know, almost invariably boils down to money and resources, and that's important. I don't dismiss the importance of resources and redistribution. I am a redistributionist in that sense, internationally.

But I'm afraid that four years of negotiating trade agreements and trying to promote the integration of developing countries and the emerging economies into the international system has taught me that resources, whilst important, are not sufficient. You need policy. You need an outlook, an attitude of mind amongst the developing countries which takes their progression into and further integration to the international system more seriously than we see in some cases.

I'm choosing my words very carefully here. You know, but a lot of this comes down to good governance. It comes down to good policy. It comes down to good frameworks of policy within the developing countries. And I simply refuse to be one of those who says as long as you spend more or give more, you're going to be able to put in place solutions to the needs of developing countries and the many millions of poor who live in them.

It requires some good policies, good judgment calls, strong political will and a determination on the parts of governments in those countries, as well as a lot of cooperation and reaching out by us, to bring about the success that they need.

STALEY: There you go.

QUESTIONER: Milord, Samuel Pisar, an international lawyer in London, Paris and New York, you know. What can you expect, in terms of European and transatlantic cohesion, for the London Summit, given the clash of interests and open clash of personalities in Europe?

President Sarkozy behaves like a permanent president of the European Union -- activist, not to say frenetic. President Klaus of the Czech Republic, who is the rotating chairman of Europe, can hardly get a word in edgewise; Mr. Brown is in open tension with the French president; and even the duo of Germany and France is undergoing a very difficult series of clashes -- and all of this while Sarkozy is taking France back into the military-commanded NATO.

Whatever comment you can make. And I remind you that for this one you really have to be very cautious. (Laughter.)

MANDELSON: Well, I, of course, wouldn't accept all your characterizations of -- of the individuals you identify and their relationships. Actually, it's to the prime minister of the Czech Republic that we look to leadership during the Czech presidency, rather than President Klaus.

And as to the relationship between President Sarkozy and Prime Minister Brown, you're simply not right. I mean, they -- there's a very strong overlap in their view. There is a strong preference as expressed by President Sarkozy for the London Summit to prioritize new forms of international financial regulation, it's true. But then we all accept, you know, stronger new forms of international financial regulation as desirable.

And I think that, you know, whereas once at the turn of the year you might have been able to say that Chancellor Merkel was perhaps more reluctant in coming along with the fiscal stimulus measures adopted both in Britain and in France, and now in the United States, she's certainly caught up with the national stimulus package of her own in Germany.

But can I just say -- this is a general observation -- these are really complex issues. You know, the idea that -- you know, that there are sort of blueprints or manuals or precedents that you can just sort of pull down from the shelves and say, "Right, this is how we've done it before when we've experienced similar crises; you know, let's just sort of do it again, but do it joined up and in a coordinated way," it's not as simple as that.

And in politics it really is very difficult, because of course while governments need to take time to plan carefully, they're constantly accused of dragging their feet because they're not making instant decisions and producing policies that have instant results. But these policies are not capable of producing instant results -- and of course, at the same time whilst everyone is impatient to know the exact scale of the banks' assets writedown.

You know, this (normally/nominally ?) can't be established and priced in such a sort of straightforward way. But those who, you know, who do start speculating about the sort of scale of the crisis and writedowns necessary, run the risk of contributing to a further loss of confidence and panic in the markets.

So I suppose what I'm really saying is that, you know, everyone is focused, but they're picking their way through this in a necessarily careful way; that there's no competition between European and world leaders as to, you know, who wins the race to get to the -- you know, to the finishing line with the -- you know, with the fastest-acting policies first. Because you don't know what the fastest-acting policies are. You don't know what constitutes the finishing line in this. Anyone who says that they can, you know, offer up predictions about, you know, what the perfect policies are, when they're perfectly going to start delivering their results and we're going to start climbing out of this, you know, frankly is an idiot.

So let's not start competing in sort of -- in idiocy, as it were. Let's just sort of think and act in as joined-up a way as we can so that we make the very best of a bad job and enable our economies, all of them, to get through this recession as quickly and painlessly as possible.

QUESTIONER: My name is Morris Hekra (ph) and I'm a member of the shrinking roll of the print media.

MANDELSON: After you've dealt with the cars, we're going to come on to the --

QUESTIONER: Yes. Yeah. We're -- I think government guarantees of advertising would be an enormous -- (laughter).

MANDELSON: Honestly, it's next on our list. (Laughter.)

QUESTIONER: Securitization has been a global phenomenon of finance. It was 50 percent, $2.8 trillion, of American finance in the year 2007, and it's collapsed to zero. We're beginning to try and revive this market. I wonder what the policies of your government are to contribute to that revival, if you think it is appropriate.

MANDELSON: I think it is appropriate. We should not shut out this sort of legitimate trade. But it has to operate in a way that doesn't cause us further trouble down the line. I mean, don't trade in what you don't understand and what you don't comprehend. If you can't value it, try and, you know, do without it.

And secondly, operate your banks in a way that enables you, if possible, to separate out the different activities of the banks so that when something goes wrong in one part, it doesn't set the rest of the bank's activities down like a pack of cards -- would be my off-the-cuff response.

QUESTIONER: Thank you. Merit Janow, Columbia University and formerly of the WTO. Look, I very much agree with your view of what the risks are in the current environment, and my question is whether you could say a bit more about the concrete measures that you think could be taken at the summit to address some of those risks. I'm hearing talk of perhaps trying to create some sort of additional trade financing facility or some sort of college of regulators, including the U.S., or other concrete measures, because I'm a bit concerned. I would strongly support a Doha statement, but I'm sensing the absence of real political will to engage, and thus it would seem very important to come up with concrete measures that would address the immediate risks that we're taking or trying to, you know, define what are temporary supports that the world can live with or think about what our exit strategies -- some things that deal concretely with the problems we are facing in the near term. Could you say a bit more about that?

MANDELSON: Well, first of all, financing trade, which is absolutely essential, requires a platform of international banking and a system of functioning international finance, without which trade can't and will not take place. And that's why I find it, you know, very, very disturbing that the reaction to the crisis now has been a sort of retreat, as it were, to home markets. At -- you know, the capacity, capability of the international banking and financial system and its markets to bring capital to the emerging economies, the finance for their trade is absolutely essential for their continued growth.

And we need that growth. We need that growth because they're picking up the slack in the falling state of demand in the global economy. But in the future, you know, our ability to sell our goods, supply our services, gain work for our people internationally depends on these countries and their economies continuing to grow.

And that's why, you know, I always say and said when I was the trade commissioner -- I used to say it to my -- many of my, you know, friends and colleagues in Europe, but I used to say it here and on the Hill as well, you know -- you know, China's growth doesn't frighten me. What frightens me more is China's growth stalling. And I could say the same for the other emerging economies as well.

Now, just on -- just on Doha, look, we will be in a better position when have a confirmed USTR. We will be in a better position when we're on the other side of the Indian general elections, by the way. And I think that if we can find -- draw on fresh leadership both in the United States and in India -- I'm not picking out -- singling out any two countries in particular. They're just two that happened to come to mind. If we can find some stronger leadership from those countries, I think we will be able to overcome the stand-off and stalemate that, I'm afraid, emerged in the -- during the course of the negotiations in the second half of last year between those two negotiators.

And it's possible that it's -- above all, it's really desirable and important to send a really important signal to people this year.

STALEY: Here you go.

QUESTIONER: John Beatty from UBS. One of the issues that hasn't been discussed is the symbiotic trade relationship that existed between the United States and China prior to the crisis. This unsustainable relationship depended on U.S. consumers, on the one hand, buying Chinese goods and the Chinese government, on the other hand, financing the U.S. current account deficit.

Of course, these days, the American consumers are saving rather than spending. So in terms of reforming or talking about restarting the international trade system, how would you do this if consumers in the United States and other countries, like the European Union, do not have the resources to spend, but are rather saving?

MANDELSON: Well, let me make a couple of points. First of all, the -- these global imbalances that you describe did indeed provide the last part of the context in which this -- from which this crisis has emerged. But I think we would be wrong in concluding that it was the imbalances themselves that were the cause or the trigger of the banking crisis, just as I believe it is wrong to say that it was a regulatory failure that has caused the -- this crisis, that the crisis germinated in the banks themselves.

Now, of course the regulators should have picked up on this, and the sorts of international reforms that we would like to see -- proper national supervision, with proper coordination amongst regulators internationally, so that you have a better-functioning early warning system operating from which you can pick up, you know, the flashing lights and take the appropriate action within and amongst regulators is exactly the sort of direction in which we need to go.

But just because we need different regulatory systems and links between and amongst our regulators, and just as -- because it would be ideal if Chinese consumers could spend a bit more, I think we have to understand, I mean, that that change in China is not going to take place quickly or easily. If anything, the crisis that has hit China is going to make many even more prudent.

And just understand, just for one moment, why people have a tendency to save in China. It's because they don't have the social safety nets, the education systems, the older age provisions made for them. You know, you save in order to survive and into your later life and to give your children, you know, some sort of a break.

Now, of course we would like to see evolving a different model of Chinese growth which is less dependent on exports and more dependent on domestic consumption. And I think, you know, China will evolve in that direction. But don't hold your breath for any dramatic changes soon.

STALEY: The council is known for timeliness, so we are at 9:00. I want to say I'm sure many members here believe very much in the free market system and in global trade and the economies working cooperatively. You're a champion of that, so we can only wish you the greatest of success this year.

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Listen to Justin Yifu Lin, chief economist and senior vice president at the World Bank, discuss how stimulus measures may be applied to boost global demand, taking into account the challenges such efforts face in poor nations, emerging economies, and wealthy countries alike.

This meeting was part of the C. Peter McColough series on International Economics.

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